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Step 2: Analyze your credit worthiness: Do
you need to mend your credit?
Mending
Your Credit Score
Check
your credit store periodically to make sure there has been no
identity fraud in your name. Equifax and TransUnion offer free
reports once a year.
To
improve your score, always pay your debts on time. Try to pay off
your credit card the ame month you make the purchase so that you
don’t have to pay interest or make regular monthly payments.
You
can set up automatic payments to avoid late fees, but be
careful not to get charged overdraft fees because you don’t have
enough funds in your account.
When
you finish paying off a loan, there is a dip in your credit score,
but it recovers quickly; wait a couple of months before applying for
another loan.
To
recover from bad or no credit, you can use a credit-building card,
where you pay the money first and then use the card. Also, look for
low- or 0-interest rate cards.
Credit
Terms to Know
Annual
Fee:
The
amount that credit card companies charge you for your credit card,
whether you use it or not.
Annual
Percentage Rate (APR): The total amount you pay each year to use credit. It
is based on the amount borrowed, interest, transaction fees, and
service charges.
Creditworthiness: A measure
of your ability and willingness to repay a loan.
Credit
score (or rating): A measure of your creditworthiness. It is based on
your financial history and is a number score. A mathematical model
determines how well you can pay back money. It helps banks trust you
will pay your credit card and car and home loans.
Credit
report: A written record collected by a credit agency that tracks
your credit payments, whether you paid on time, and how long you have
had your credit accounts.
FICO
score:
A
mathematical model that determines if you can be trusted to pay what
you borrow, plus interest.
Finance
charges: The interest paid on the credit you are using.
Grace
Period: Time when you don’t have to pay your credit card and you
don’t yet get charged interest.
Interest: You pay
interest when you use money you borrowed from someone else. It is
usually based on an annual rate that is a percentage of the principal
(the amount you borrowed).
Late
Fee: A penalty on all types of credit for making a
payment after its due date.
Loan
sharks: Unlicensed lenders who charge high interest rates
illegally.
Minimum
payment: The smallest amount you have to pay each month when
you have paid for something using a credit card. If you pay only the
minimum amount, you will be charged a lot more interest than if you
pay more than the minimum amount each month. If you pay the entire
debt the first month, you pay nothing in interest.
Principal: The
amount of a loan, not including interest.
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